Hot off the presses, we have a bunch of announcements in the pipeline from the Federal Government in the form of the 2019 Federal Budget that may affect the housing market. Let’s take a look under the hood at the new programs being proposed by the government, and the impacts that they may have.
CMHC First-Time Home Buyer Incentive
The first proposal is for a contribution from the government to provide up to 10% of the downpayment for a new home purchase (i.e. from builders), or a 5% downpayment for resale homes purchased by a first-time home buyer. The plan would tap a $1.25 billion fund over a three-year period, and it’s tied into the CMHC as a new program called “The First Time Home Buyer Incentive”. The details are still being clarified as of today, but the concept is to assist first-time home buyers to buy by lowering their initial carrying costs and hopefully helping them access homeownership sooner.
So where’s the catch? For starters, to qualify for the program the applicant must have never owned a home before anywhere in the world, and they must have an income of less than $120,000. The Buyer must contribute at least 5% of the downpayment (which at $400,000 would be $20000), and still pass the mortgage stress test to obtain their supplemental financing.
The portion of the CMHC insured mortgage is capped to mortgages of no more than 4x the income of the applicant, or $480,000, and only applies to homes priced up to $500,000.
This is a loan – it will have to be repaid in time, but as of press time details are still vague if the loan is an appreciation-based loan (where the loan repayment amount is indexed to the market appreciation of the property, and generally no payments are required until the sale of the property at a future date), an interest-based loan (which requires ongoing payment of principal and interest like a conventional mortgage), or a blend of both. Timing for repayment has also been left unclear and the government said more details will follow in the weeks ahead. The program is supposed to be launched in September of 2019.
Appreciation-based loans have been in existence in the Toronto market for over 25 years. Builders including Options for Homes and Daniels have offered these types of programs for first-time home buyers, and arguably on more favourable terms. To learn more about an active mortgage assistance program, please visit www.OptionsForHomes.ca – we are currently working with them on selling a pre-construction project called The Humber in Toronto in Weston that offers up to a 15% assistance loan – and it’s available now, instead of next fall!
Increase to Home Buyers Plan Contribution
This was widely anticipated – the Home Buyers Plan currently allows first-time home buyers to extract up to $25,000 out of their RRSP per person to contribute towards their first home purchase. This amount must be repaid within 15 years, but it is tax-free at the time it is withdrawn. The value of the tax exemption has been reduced over the years due to an appreciation in housing prices and overall inflation. The new plan calls for an increase to $35,000 to allow for a larger downpayment to be sheltered from taxes. While the added contribution space is terrific, the timeline to repay the funds into your RRSP has been kept at 15 years… So while this is a helpful measure, it comes at a price of potentially higher repayments to be made.
Overall these programs will not have a dramatic effect in the GTA where housing prices on average are above the requirements for these programs to be most beneficial. For properties in more rural/suburban areas, these programs will likely contribute to renewed price appreciation as the market sees an influx of capital being made available for purchasers.
To review the entire federal budget, please follow this link.
This is an election year, and it’s a good time to reach out to your MP and let them know that the government can do more to make homeownership more accessible. Concrete steps in this direction would be a softening of the Mortgage Stress Test requirements on a federal level, and on a Provincial and municipal level easing of land transfer taxes and foreign buyers, taxes would go a long way towards helping families right-size into properties that best meet their needs. It’s your government – let them know!
On a much more grounded level, we have seen a very strong uptick in buying activity and competition in the past two weeks. Bidding wars and bully offers are coming back into fashion after nearly 24 months without them. We anticipate this trend to accelerate now that the deep freeze of winter is finally melting away and more inventory is coming to market.
If you or anyone you know is looking to buy or sell, please let us know and we are happy to provide a current market update as we head into the spring market.
Hang on to your hats – it looks like it’s going to be a hot start to spring!